The last barrel
Have many readers noticed that going back 12 months, the “experts” in our industry, as well as other lines of endeavor, have been consistently wrong in their predictions and analysis? A growing pile of evidence supports my hypothesis, enough so that every time someone makes a prediction, I am inclined to run in the opposite direction, as far from it as possible. Several examples range from oil prices to political contests and college football.
Oil price goofs. Nowhere have experts been more wrong, more frequently, than when they predicted oil prices 10 to 12 months ago. In October 2014, very few people believed that prices would fall so fast, to where they are now, and drag E&P activity down with them. Perhaps this is because they failed to recognize early on, that the root of the problem is deliberate Saudi over-production, just as it was in the 1986 oil price collapse.
Certainly, the investment banks and institutions, collectively, were way off the mark. One example is an Oct. 1, 2014, polling by Reuters of 30 analysts from such institutions. Together, that group came up with an average 2015 Brent price of $103.30/bbl, and a WTI figure of $96.10. As of Oct. 5, 2015, the Brent spot price was $49.25, a difference of $54.05 from the group’s average. The WTI spot price was $46.26, or down $54.84 from the analysts’ original, average figure.
As time wore on, the track record didn’t improve—on Oct. 27, 2014, Goldman Sachs “slashed” its forecast for 2015 to $85 for Brent and $75 for WTI, meaning that they are still off $35.75/bbl and $28.74/bbl, respectively. Two weeks later, JPMorgan Chase & Co. learned absolutely nothing from Goldman Sachs, and actually came out with higher numbers, predicting $87.80 for Brent and $82.00 for WTI, even as prices, and the U.S. rig count, began to slide precipitously.
Eleven days later, on Nov. 21, 2014, as E&P activity continued its nosedive, Wells Fargo “trimmed” its predictions to $89.25 for Brent and $83.25 for WTI. So, its numbers were even higher than those of JP Morgan Chase, which were too high compared to earlier figures from Goldman Sachs. At some point, you have to ask, did any of these analysts ever pay attention to the immediate crumbling of industry activity all around them?
As late as Dec. 9, 2014, Bank of America/Merrill Lynch “reduced” its 2015 predictions to $77 for Brent and $72 for WTI. Even then, analysts still didn’t grasp the magnitude of the oil price problem. To its credit, on Dec. 1, Wood Mackenzie noted that before the OPEC meeting on Nov. 24, 2014, there had been “considerable speculation as to the motives of Saudi Arabia,” since it had not cut its production. But then Wood Mackenzie ruined that good piece of observation by insisting that the agreement reached at the OPEC meeting, to not step up Iranian oil exports during first-half 2015 would be “price-supportive.” This has not proven to be all that true.
Finally, on Dec. 16, 2014, the U.S. EIA lowered its 2015 projections to $68 for Brent and $63 for WTI. Yet, these also proved to be off the mark. Perhaps Forbes magazine contributor Bill Conerly came closest to getting it right, when on Dec. 18, he said, “My price forecast is that today’s $60/bbl price is likely to be the high end for the coming two years.” However, he got the other half of the equation wrong, when he said, “At the low end, $50 seems like a floor.”
Of course, the financial houses have scrambled to get their figures in order ever since, but it really wasn’t until many operators came out with drastically revised spending plans in February that analysts began to get closer to the target. Even so, as late as March, we continued to hear some folks say that they thought prices, and thus activity, would pick up in fourth-quarter 2015. Today, there is no evidence that this will happen, not even mildly.
Poor predictions in politics and sports. Bad forecasting and postulating don’t stop with oil prices. Look at how wrong political pundits in the U.S. have been about Republican contender and businessman Donald Trump. “Trump’s high poll numbers won’t last,” blared a headline from Newsmax on July 9. A U.S. News & World Report headline on July 17 sneered, “The Trump bump will fade.” As late as Aug. 18, The New York Times, stumped by Trump’s early success but still ever-arrogant in its tone, decried his stand on immigration policy as “Donald Trump’s American Idiocy.” Yet, as of early October, Trump, in most U.S. nationwide polls, remained in first place among Republican contenders, at roughly 25%.
The political experts also got the UK parliamentary election on May 7 all wrong. Right up to election day, pollsters and pundits almost unanimously were calling for a very close election, with many of them predicting that Labour would squeak by with a win. Instead, the Conservatives won an outright majority, picking up 331 of 650 seats and shedding themselves of the coalition with the Liberal Democrats.
Beyond politics, it’s been a bad year for U.S. college football pollsters. After just six weeks, only five of the original top 10 teams in the pre-season top-25 rankings remained: Ohio State (#1), TCU (#2), Baylor (#3), Michigan State (#5) and Alabama (#8). Two teams, Auburn and Oregon, were completely gone, and three others, Florida State, USC and Georgia, fell into the bottom 15 of the rankings. They were replaced by two teams that started the season unranked—Utah (#5) and Texas A&M (#9)—plus Clemson (#6), LSU (#7) and Oklahoma (#10), which all started in the bottom 15.
It’s a good thing that Las Vegas oddsmakers don’t offer bets on oil prices—they’re having a hard-enough time sorting out elections and college football. 
